💧 When the Levee Breaks
As a CFP® at Secfi, Eric guides clients through the complexities of equity compensation, integrating it into their broader financial goals.
0 result
0 result
As a CFP® at Secfi, Eric guides clients through the complexities of equity compensation, integrating it into their broader financial goals.
Hey there,
Eric here during a hectic time in helping clients navigate the upcoming blackout period and IPO of SpaceX. Mapping this long-awaited reality, turning paper gains into life-changing capital for clients. Maybe they’re planning for an extended period out of the workforce and living off the portfolio. Or moving to a smaller, faster growing company now that financial independence has been achieved. Pursuing dreams, ambitions and life goals over the millions set to vest over the next few years. Tough tradeoffs that really make you assess “what are these dollars for, anyway?”. And these conversations are becoming all the more common in anticipation of the coming flood of IPOs.
And you’re probably sitting back saying, really?? SpaceX again?
Well, that sentiment really strikes at the heart of the current late-stage startup environment. A few companies have sucked all of the air out of the room. The levee is breaking. How are the flood waters going to impact you?
Current valuations
Forecasted IPO Targets
Total: $3.55 - 3.80T
Total value of S&P 500: $63.87T as of Apr 15, 2026
Percentage of S&P 500 that these three companies may represent: 5.5%. Each of these companies would supplant itself either near or in the top 10 largest companies in the US. Historically, the largest company ever added to the S&P 500 was back in December of 2020 by none other than…Elon Musk with Tesla at over $600B. So one company in isolation may not be an issue. But three companies, hitting the market in a short time period, absorbing capital, attention, and risk, could suffocate parts of public and private markets.
SpaceX alone is said to be targeting a $1.75T+ valuation and up to $75B capital raise for IPO. To put this into context, the IPO market raised about $170 billion in 2025, the best in three years. SpaceX's raise could equal nearly half that in a single deal and exceed the combined inflation-adjusted proceeds of the two largest IPOs in history in Saudi Aramco and Alibaba.
Going public is the moment a company stops being worth whatever its last investor agreed to pay, and starts being worth whatever the world decides. The first moments of real price discovery when the investing public gets a say.
As we’ve noted in previous newsletters, there can be meaningful price volatility around an IPO as a function of this price discovery. Another key reason is the accessible float.
At a high level, the larger the accessible float of a company going public, the greater the influence of market participants on price discovery. Coinbase, at one extreme, had a direct listing of its stock in 2021, allowing market access to every share that wanted to trade. True democratization of finance.
Likely on the opposite end of the spectrum is SpaceX, which is looking to float under 5% of its equity. For historical reference, Nvidia issued 10% of float at IPO, Google 11%, Amazon 18%, and Meta 16%. Most recently, CoreWeave issued approximately 8% of float at IPO in 2025. All the dollars of the market chasing less than 5% of a company's tradable shares before employee and investor lockups expire. Throw in the potential of early index inclusion, discussed shortly, and the conditions for a manufactured spike are in place.
These enormous market caps have resulted in a needed debate regarding inclusion of companies into market indexes - the benchmarks that define which companies belong in funds tied to the S&P 500 or Russell 2000.
The issue: Indexes that are meant to include the largest companies in the world should include newcomers like those discussed. But when?
Why does this matter? The billions to trillions of capital at stake.
Inclusion in an index means that every investment vehicle designed to mirror the index must transition dollars from existing participants to new entrants. Any fund that uses an index as a benchmark may also look to include the company in their fund to reduce tracking error, or how far the fund deviates from their target allocation.
Getting technical, many indexes are “free float adjusted”, meaning a company’s weighting in an index will depend on how much float there is for a company’s stock. With SpaceX’s expected free float under 5%, these indexes will weight SpaceX based on its float-adjusted market cap of about $75B. This makes logical sense, and I would argue is beneficial for investors. The Nasdaq 100 (tied to the famous ticker: QQQ) on the other hand, is not free float adjusted. The Nasdaq 100 will weight their index based on the total market cap of SpaceX, regardless of float. Instead of viewing the company as $75B of tradable equity, it will be viewed as $1.75T+ of market cap and require underlying funds like QQQ to purchase a disproportionate amount in order to properly weight the index exposure. The result is a wave of forced institutional buying chasing shares that simply don't exist in sufficient supply. Artificial demand and manufactured spike.
This isn’t pure malintent. This is heavily a sizing issue, and how much a market can absorb in dollar terms. For company employees and early investors, this new capital provides a deluge of exit liquidity. But how much time is adequate before a company is placed into every retirement account in America? Is the American public missing out on potential upside if the hottest companies aren’t included in indexes? Or are we turning the investing public into bagholders of overpriced companies?
It's one of the benefits of companies going public earlier in their growth trajectory. The flip side to the “staying private for longer” trend that’s taken hold. Earlier price discovery, greater scrutiny of financials, market appreciation felt by the investing public rather than the institutional capital that spends years sucking every last ounce of market cap before gamifying their exit.
The IPO headlines are crowding out attention and capital. It’s only April, and it feels like the 2026 IPO window is already closing. Prediction market odds on whether large private companies like Anduril, Brex, Databricks, Deel, Discord, and Ramp will IPO in 2026 have all trended downward in recent months.
Thinking about your equity, it will be important to watch what happens to these megaliths after going public. Do valuations hold post lockup? Are index inclusion rules rewritten in real time, setting a precedent for your company’s IPO? Where do distributions from the VCs go?
As one might imagine, IPO proceeds are one of the primary ways VCs distribute capital back to their LPs, who can then reinvest some of that capital into new (early and late stage) VC funds, fueling the startup lifecycle. But this doesn’t happen all at once. Research shows that on average, lead VCs retain their shares for three years post-IPO, depending on factors like the company’s future growth potential and market performance. This will lead to share distributions and sales trickling out over years.
Parsing signal from the noise:
If your company is attracting late-stage capital from major funds with ample liquidity over the next few years, your equity is likely in a great place and more than just the monopoly money it often feels like. Alternatively, if your company is being passed over as dry powder from these large exits chases the next AI/ML/robotics wave, well, this is valuable information too. A signal that it may not be worth getting on the cap table. For those already on the cap table, a sobering read on exit potential.
Your employment and potentially your balance sheet are concentrated in illiquid tech equity. As more and more large technology companies hit the public markets and further concentrate indexes like the S&P 500 (currently 36.8% of which is concentrated in the top 8 companies, all tech focused), you have to ask yourself if this is the right allocation for you.
Does that much concentration make sense for your situation? Can you weather the volatility and potential downside in the event of a correction, geopolitical headwinds, or regulatory shifts that limit growth in the space? Do you believe there’s greater growth and appreciation in these names than all the companies set to adopt and garner efficiencies from the technology?
Before the flood waters rush in, start making decisions about your equity and employment that provide stable footing on higher ground.